The Taiwanese Economy in August 2024

The global economy is experiencing gradual expansion, with inflationary pressures continuing to ease. However, the manufacturing sector has yet to show significant recovery. Additionally, recent divergences in interest rate policies among major economies and the unwinding of yen carry trades have intensified volatility in global financial markets.
In Taiwan's domestic manufacturing sector, as the peak season for new product preparation by international brands approaches, August exports reached record highs. However, due to the impact of lower international oil prices on petrochemical product prices and persistently weak demand, surveyed manufacturers reported declines in transaction prices for both domestic and export products, production activities, and new order volumes compared to the previous month's survey, leading to a worsened outlook for the current and latter half of the year of the manufacturing sector.
In the service sector, the onset of the Ghost Month in the lunar calendar has led to divergent performance between essential and non-essential consumer goods. The summer peak season boosted August revenues significantly in the food and beverage industry. However, the cooling of domestic tourism has affected the outlook of accommodation and food service activities. Volatile stock market performance and shrinking transaction volumes have led to declining profits for securities firms, with most securities industry players pessimistic about the current month's economic performance.
In the construction sector, despite ongoing government public works projects and active factory renovations by technology companies, demand for residential housing construction has slowed. Combined with rising prices for ready-mixed concrete and unresolved labor shortages, the construction industry's performance remained flat in August. Although construction costs remain high, the government's increased investment in renewable energy and infrastructure, along with the approval of major public construction projects, paints an optimistic outlook for the construction industry over the next six months. Recently, banks have tightened their real estate lending limits, and the Ghost Month has further slowed housing transactions, creating a cautious atmosphere in the real estate market. Looking ahead, the central bank's strong measures against real estate speculation and tightening capital availability are expected to be the main factors influencing future real estate market trends.
According to the Taiwan Institute of Economic Research (TIER), after model simulations, the Composite Indicators for the manufacturing, service, and construction sectors all show a downward shift.
Firstly, in terms of Taiwan's foreign trade, strong demand for AI-related products and the peak season for consumer electronics have driven growth in electronic and ICT product exports. Combined with the stabilization of traditional industries and delayed shipments due to a typhoon in late July, August's export growth rate expanded from 3.1% in the previous month to 16.8%, while the import growth rate decreased from 16.2% to 11.8%. Among major export products, ICT and audio-visual products maintained high growth rates, benefiting from AI and high-performance computing opportunities and the peak season for new product preparation by international brands. Electronic components, however, saw only a slight growth of 0.1% due to changes in the sales structure of integrated circuits. Traditional industries saw improvements, with semiconductor equipment and synthetic rubber demand increasing, leading to positive growth rates for basic metals and their products, machinery, chemicals, plastics, and rubber products.
Regarding prices, vegetable and fruit prices rose noticeably due to the typhoon's impact in late July, coupled with increased edible oil prices. This kept overall food price inflation high, with the annual growth rate of food prices expanding from 4.57% in July to 4.64% in August, contributing 1.25 percentage points to the overall index, an increase of 0.04 percentage points from the previous month.
In the labor market, the graduation season led to a significant increase in the number of first-time job seekers, pushing the unemployment rate to 3.48% in August 2024, up 0.03 percentage points from the previous month. However, the number of people unemployed due to business contractions or closures decreased compared to the same month last year, resulting in a 0.08 percentage point drop in the unemployment rate year-on-year. The average unemployment rate for January to August this year was 3.39%, down 0.13 percentage points from the same period last year.
On the financial market side, market liquidity remained stable. In August 2024, the overnight interbank call loan rate in the financial sector ranged from a high of 0.824% to a low of 0.814%, with a weighted average of 0.820%, unchanged from the previous month but 0.137 percentage points higher than the same month in 2023. In the stock market, concerns about a potential U.S. recession led to significant global stock market declines in the first half of the month, with Taiwan's stock market experiencing its largest drop in history. However, as panic in financial markets subsided, the stock market rebounded, resulting in a slight increase in Taiwan's main index in August. The Taiwan Weighted Index closed at 22,268.09 points at the end of August, up 0.31%, with an average daily trading volume of NT$405.763 billion. Regarding exchange rates, as the stock market stabilized, foreign investment in the forex market showed a clear trend toward inflows. However, demand for outward remittances from investment trust companies and central bank interventions moderated some of the appreciation, resulting in an overall appreciation trend for the New Taiwan Dollar in August. The exchange rate closed at NT$31.94 to the US dollar at the end of the month, appreciating by 2.81%.

Business Survey Outcomes

The proportion of manufacturing firms that perceived their business as better than expected in the target month was 19.6%, a decrease of 1.5 percentage points compared to respondents who perceived their business as better in the previous month. On the other hand, the proportion of those who perceived their business as worsening in the target month was 31.4%, an increase of 6.3 percentage points compared to the 25.1% of respondents who perceived their business as worsening in the previous month. Additionally, the proportion of manufacturing firms that perceived their business as remaining constant in the target month was 49.0%, which decreased by 4.8 percentage points compared to the ratio of respondents from the previous month who perceived their business as constant. Furthermore, in the target month, the segment of manufacturers who anticipated an improvement in their business over the next six months stood at 20.6%, representing a drop of 7.0 percentage points compared to the 27.6% of respondents who were more optimistic about the near future in the previous month. Conversely, the portion of firms foreseeing a deteriorating economic outlook was 22.7%, marking a slight increase of 1.0 percentage points compared to the 21.7% of respondents who held a more pessimistic view of the near future in the previous month. Meanwhile, 56.8% of manufacturing firms perceived their business outlook as remaining constant in the next six months, increasing compared to the 50.7% of respondents one month earlier. Overall, manufacturing firms hold less confidence in the near-term business outlook.
The TIER Manufacturing Composite Indicator for August 2024, adjusted for seasonal factors, underwent a corrective decline. The index for August 2024 stands at 96.65 points, a decrease of 2.30 points from the revised 98.95 points of the previous month, marking the third consecutive month of decline.
In addition, the TIER Service Sector Composite Indicator for August 2024 exhibited a downward trajectory. It moved from a revised value of 99.02 points in July to 97.88 points in August 2024, a decrease of 1.14 points from the previous month, showing a downward trend for the second consecutive month.
Lastly, the TIER Construction Sector Composite Indicator for August 2024, adjusted for seasonal factors, stood at 107.36 in August, down 4.57 points from July’s 111.93, marking the second consecutive month of decline.

Analyses and Outlook of Industries

Following are manufacturers' sentiments that are industry-specific in the monthly TIER surveys:

Manufacturers’ sentiments that have been in decline in the August survey and are expected to deteriorate over the next six months include:
Motor Vehicles Manufacturing, Securities.

Manufacturers’ sentiments that have been in decline in the August survey, but are expected to improve over the next six months include:
None.

Manufacturers’ sentiments that have been in decline in the August survey and are expected to remain sluggish over the next six months include:
Printing, Plastics and Rubber Raw Materials, Plastic Products Manufacturing, Cutlery and Tools Manufacturing, Construction, Real Estate Investment.

Manufacturers surveyed who felt the August outlook was the same as the previous month, but the outlook is expected to exacerbate over the next six months include:
Iron and Steel Basic Industries, Transport Equipment Manufacturing and Repairing, Motorcycles Parts Manufacturing, Wholesale.

Manufacturers surveyed who felt the August outlook was the same as the previous month, but the outlook is expected to improve over the next six months include:
Food, Frozen Food Manufacturing, Edible Oil Manufacturing, Flour Milling and Grain Husking, Paper Manufacturing, Non-metallic Mineral Products Manufacturing, Porcelain and Ceramic Products Manufacturing, Glass and Glass Products Manufacturing, Cement and Cement Products Manufacturing, Metal Dies, Metal Structure and Architectural Components Manufacturing, Electrical Machinery, Supplies Manufacturing and Repairing, Electronic Machinery, Communications Equipment and Apparatus Manufacturing, Electronic Parts and Components Manufacturing, Bicycles Manufacturing, Basic Civil Structure Construction, Retail Sales, Banks, Telecommunication Services.

Manufacturers surveyed who felt the August outlook was the same as the previous month and the trend is expected to continue for the next six months include:
Manufacturing, Prepared Animal Feeds Manufacturing, Textiles Mills, Yarn Spinning Mills, Fabric Mills, Leather, Fur and Allied Product Manufacturing, Wood and Bamboo Products Manufacturing, Industrial Chemicals, Petrochemicals Manufacturing, Man-made Fibers Manufacturing, Petroleum and Coal Products Manufacturing, Rubber Products Manufacturing, Fabricated Metal Products Manufacturing, Screw, Nut Manufacturing, Electrical Machinery, Electric Wires and Cables Manufacturing, Electrical Appliances and Housewares Manufacturing, Motor Parts Manufacturing, Motorcycles Manufacturing, Bicycles Parts Manufacturing, Restaurants and Hotels, Insurance.

Manufacturers’ sentiments that have improved in the August survey and is expected to deteriorate over the next six months include:
None.

Manufacturers’ sentiments that have improved in the August survey and is expected to remain upbeat over the next six months include:
Slaughtering, Machinery and Equipment Manufacturing and Repairing, Industrial Machinery, Data Storage Media Units Manufacturing and Reproducing, Precision Instruments Manufacturing, Education and Entertainment Articles Manufacturing, Transportation and Storage.

Manufacturers’ sentiments that have improved in the August survey and the trend is expected to continue for the next six months include:
Soft Drink Manufacturing, Apparel, Clothing Accessories and Other Textile Product Manufacturing, Chemical Products Manufacturing, Audio and Video Electronic Products Manufacturing.